Financial sustainability of microfinance institution in the Philippines: A study on the provision of sustainable services and poverty reduction through financial inclusion

• Main Authors: Bengzon, Paula Gabrielle D., Dulay, Mariel Angelica U., Dysangco, Nicole Margaret L., Zarate, Justine Elysia L.
• Format: text
• Language: English
• Published: Animo Repository 2015
• Subjects: Financial institutions > Philippines
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/7683
• Institution: De La Salle University

This research paper mainly identifies the significant factors that determine the financial sustainability of microfinance institutions (MFIs) in the Philippines. In line with identifying the said determinants, this paper also examines whether a trade-off exists between outreach to the poor, which is an indicator of financial inclusion and efficiency of Philippine MFIs. Hence, this paper uses a stochastic frontier analysis (SFA), specifically the Battese and Coelli (BC) Model to examine whether there is a trade-off between outreach to the poor and efficiency of Philippine microfinance institutions (MFIs), and both binary and ordered probit regression to identity the significant determinants of financial sustainability of these MFIs. Using a sample of 146 observations, consisting of 30 Philippine MFIs, over a period of 12 years (2003-2014), the results of the study show that the significant factors that affect the financial sustainability of MFIs in the Philippines are loans intensity and credit risk, positively by loans intensity represented by the ratio of gross loan portfolio to total assets, and negatively by credit risk represented by the portfolio at risk greater than 30 days. Moreover, outreach and efficiency of Philippine MFIs are positively associated as represented by average loan balances. The study also documents the insignificance of female borrowers as a strong contributor to inefficiency unlike most studies.